Sizing up the state of Louisiana’s energy industry used to be pretty simple. If the price of crude oil was strong relative to historic values, the state’s oil producers raked in profits. If prices declined or were persistently low, those same businesses felt bottom-line pain.
But during the last few decades – since the heady days of high demand and high prices in the 1980s, for example – the energy industry has changed a lot. And today, gauging the health of the business is more complicated than it used to be.
On the one hand, the United States is producing more oil than ever, and whereas the country used to import oil from foreign sources in order to meet domestic demand, it has recently become a net exporter of the commodity. Among other things, this has reduced U.S. vulnerability to countries that might seek to use oil as an economic weapon. But the expanding supply has also caused oil prices to languish in a range of $55 to $65 per barrel, well below the $100 mark last seen in 2014.
New Orleans, over a period of decades, saw many of the oil companies that once filled downtown office buildings shift much of their workforce to Houston. Even now, the city continues to feel the impact of industry volatility on oilfield service companies throughout the area. Most notably, Tidewater Inc., a global leader in providing service boats to the offshore oil industry and a longtime anchor of the industry in New Orleans, succumbed to market pressures, went through bankruptcy and last year relocated to Houston.
Another area service business, Covington-based Hornbeck Offshore Services Inc., which built a thriving business by providing high-tech global-positioning vessels to offshore drillers, also acknowledged a prolonged financial struggle. In its latest earnings report to stockholders, Hornbeck stated: “The Company remains fully cognizant of the challenges currently facing the offshore oil and gas industry and continues to review its capital structure and assess its strategic options.”
Yet, in the midst of the offshore oil industry’s difficulties, a comeback is underway in the natural gas business, in which Louisiana is a major player. Worldwide demand for natural gas rose as cheap gas became more readily available than other fuel types, and Louisiana has benefited from multi-state pipelines that bring the gas to hubs in the southern part of the state. That access has led to construction and expansion of gas-fed petrochemical plants across south Louisiana, and transportation of their products has fueled growth at area ports.
Simultaneously, activity in shale gas originating in massive shallow-rock formations from which producers extract huge amounts of natural gas – has quietly rebounded from a six-year lull. Drilling in areas such as north Louisiana’s Haynesville Shale field has pushed the state’s natural gas production to a level not seen since 2012.
All of which paints a picture of Louisiana’s energy industry that is far more complex than it was in, 1990, for instance, when drillers drilled during the good times and simply waited out the bad ones. Global management consultant Pricewaterhouse Coopers summed up the situation nicely in its latest report on oil and gas trends.
“Although the oil and gas industry has always been volatile, there was nonetheless a comfortable predictability to the boom and bust pendulum,” the report states. But now, erratic price fluctuations, “ambiguity about the future of fossil fuels and increasingly contentious trade negotiations … are upending traditional supply and demand fundamentals.”
With no clear answers emerging for the industry, the report adds, “Oil and gas executives are essentially trying to set a growth course for their companies on shifting sands.”